ConocoPhillips COP is considering the acquisition of smaller rival Concho Resources Inc. CXO, per Bloomberg. The current market volatility might trigger more acquisitions in the oil and gas space.
Although any final decision regarding the acquisition is yet to be made, there’s a chance that a deal might be finalized in the next few weeks. A massive $38.2-billion upstream company, ConocoPhillips’ acquisition of Concho Resources — a $8.8-billion company — will likely lead to the creation of one of the biggest exploration and production companies in the world.
The move is expected to boost ConocoPhillips’ oil-rich Permian Basin acreages. Spanning 800,000 gross (550,000 net) acres, Concho Resources’ assets are spread over high-quality land across the core Delaware and Midland Basins. Total second-quarter production for ConocoPhillips and Concho Resources were recorded at 1.3 million barrels of oil equivalent per day, per Bloomberg.
Now, a question may arise whether ConocoPhillips’ balance sheet can support such an acquisition. As of Jun 30, 2020, the company had $2,907 million in total cash and cash equivalents, and total long-term debt of nearly $14,852 million. Its massive liquidity position will enable it to pay off short-term debt of only $146 million. Also, it had a debt to capitalization of 32%, lower than the industry average of 42.9%. As such, the balance sheet of ConocoPhillips is significantly less leveraged than the industry it belongs to.
What about Concho Resources’ balance sheet position?
Concho Resources’ total long-term debt is currently around $4 billion, with only $320 million in cash & cash equivalents. However, the company has still got $2 billion in unused credit facility. Moreover, Concho Resources has no near-term maturities. Therefore, the company seems to be in a decent financial position.
Trend of Acquisitions
The present market situation might allow ConocoPhillips to acquire rich shale assets at beaten-down prices. In fact, we have witnessed some other merger and acquisition deals in this turbulent period. Chevron Corporation CVX proposed a more than $5 billion merger deal with Noble Energy for the latter’s Eastern Mediterranean assets. In another deal, Canadian Natural Resources Limited CNQ recently agreed to acquire all issued and outstanding common shares of its smaller rival, Painted Pony Energy.
Last August, Southwestern Energy agreed to acquire a smaller natural gas producer, Montage Resources, in an all-stock deal. During September-end, Devon Energy and WPX Energy have decided to merge in a bid to strengthen their position in the Permian Basin.
The company’s shares have declined 46.4% in the past six months compared with 54% plunge of the industry it belongs to. ConocoPhillips currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Chevron Corporation (CVX): Free Stock Analysis Report
ConocoPhillips (COP): Free Stock Analysis Report
Concho Resources Inc. (CXO): Free Stock Analysis Report
Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report
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